TPG buyout to require public inquiry, says iiNet

news The chief executive of iiNet today said a public inquiry would need to be held if rival broadband company TPG decided to extend its stake in his company to the point where an acquisition was on the cards — and the issue could become a policy question to be decided by the Federal Government.

In mid-October this year, iiNet revealed long-term rival TPG had quietly bought about 4.4 percent of its shares, in a move which led to speculation about iiNet’s future as an independent company. At the time, TPG said it had “no specific intention” regarding iiNet other than to own the shares as a strategic investment.

In addition, the executive wouldn’t comment directly on whether iiNet would seek to meet with TPG, other than to say the company had a number of major shareholders with similar share stakes.
Like iiNet itself, TPG has acquired several other major telcos in Australia over the past few years and aided in the ongoing consolidation of the telecommunications market. Any acquisition of iiNet by TPG would leave Australia with just three major national broadband giants — Telstra, Optus and TPG — with a handful of rivals with vastly smaller scale such as Internode, Dodo and Primus.

If TPG were to make an offer for iiNet, Malone said, such a deal would be on the threshold where the Australian Competition and Consumer Commission would be interested in examining impacts on competition arising from the deal.

“The ACCC tends to have a 20 percent [market share] threshold,” he said, noting that this would probably rule out companies like Telstra and Optus from buying iiNet, whereas TPG would be on the borderline. iiNet currently has about 13 to 14 percent of the ADSL broadband market, and about 10 percent of the total fixed-line broadband market.

Additionally, Malone said a TPG offer for iiNet would need “a public inquiry”, and would perhaps need to be examined by the Federal Government as “a question of policy”.

Malone also commented in general on the issue of competition in the Australian telecommunications market. Last week Delimiter published an opinionated article arguing iiNet’s ongoing acquisitions — which have included major ISPs such as OzEmail, Netspace, AAPT and now TransACT — would have a negative impact on competition in the sector following the rollout of the National Broadband Network.

“I think your most recent article is a load of rubbish,” said Malone, pointing out that many of Delimiter’s readers criticised the article’s assertions in the comments section.

The iiNet chief executive said in reality there was only one “behemoth” dominating the broadband market — Telstra — and that consolidation of smaller players was allowing viable competition to arrive in the market for the first time.

“iiNet and TPG are now at a size where we’ve got viable scale,” Malone said. Previously, he argued, Telstra had not cared about the existence of a plethora of smaller ISPs because they were “unviable competitors”. However, the current situation was making Telstra ‘sit up and take notice’. In any sector, Malone said, ultimately three to five strong companies would emerge from the competitive process — with smaller niche companies serving discrete markets. “I think that’s going to continue,” he said, noting the NBN policy would see smaller ISPs creating geographic customer niches.

TransACT and competition
The TransACT acquisition will be of particular interest to those following the level of competition the broadband market, as the company owns a substantial amount of fibre infrastructure in Canberra, and hybrid fibre infrastructure in some regional Victorian cities, which have the potential to directly compete with the NBN footprint.

Malone said there were three scenarios for what could occur with TransACT’s networks under the NBN. Firstly, he said, NBN Co could compensate TransACT for shutting its networks down and migrating customers on the NBN, in a similar contract to the ones NBN Co has signed with Telstra and Optus. However, the executive considered this situation to be unlikely.

It was more realistic that NBN Co would either build its own network in the areas which TransACT served, he said, but more likely that the fibre company would regard the areas served by TransACT as already have sufficient broadband services and not build fibre infrastructure in those areas. It would be possible under current telecommunications legislation to exempt those areas, although the Government had yet to make a decision on the matter.

opinion/analysis
iiNet is the prize jewel of Australian telecommunications right now, and over the years it’s had a number of different telcos on its share registry. Amcom, Telecom New Zealand (PowerTel/AAPT), and now TPG. The speculation about the company’s future is not going to die down. Until it becomes a lot larger or wins a major institutional investor to block its registry in a big way, it is going to remain in play.

I’m not sure whether I agree with Malone or not that a public inquiry should be held if TPG grabbed a stack more iiNet shares and made an offer. We haven’t really seen this kind of public inquiry in Australia’s broadband space yet — although we did see it when Vodafone and Hutchison merged in the mobile space. However, I do know that the ACCC will be watching this scenario very closely. iiNet has and continues to be one of the most competitive forces in Australian telecommunications. If that jewel was suddenly submerged into another major company like TPG, alarm bells would be ringing all over the place.

27 COMMENTS

Surely a bit tongue in cheek! One company complaining about its possible takeover whilst it is actually taking over another company! Isn’t that the capitalist system we have come to accept, where dog eats dog?
I can grow big but others must no interfere and if they do I shall call on the government, protector of all monopolies, to intervene.
Free enterprise? No! No! Not if the corporate world has a say.

Actually the capitalist system is about having enough competition that good ideas/products/systems/implementations rise and bad ones fail. You have to have enough companies doing it for it to be effective.

I’d like to see the government pick a market share for various industries, and when a company outgrows that it’s tax increases significantly, as a polite invitation to split in 2. Keep multiple competitors competing effectively.

Internode told AFR they would have listed on ASX in 2008/09 if it wasn’t for the GFC, and will list in 2013 when the NBN is canned. it sure doesn’t sound like Internode wants to remain private forever.

Part IV of the Competition and Consumer Act 2010 (the Act) prohibits various anti-competitive practices that limit or prevent competition. It aims to foster the competitive environment necessary to give consumers diversity of choice in price, quality and service for goods and services. For example, Part IV prohibits specified cartel conduct and other forms of conduct among competitors that substantially lessens competition in a market. A reduction in competition that may occur as a result of the collusion might allow some traders to push prices up and lower the quality of the goods and services they offer to consumers.
Some anti-competitive conduct is prohibited on the basis that it has particular anti-competitive purposes or effects (i.e. cartel conduct such as price fixing or bid rigging), while other conduct is prohibited if it substantially lessens competition. A substantial lessening of competition may occur, for instance, when the ability of buyers to shop around for a deal that suits them is significantly diminished by an anti-competitive agreement among suppliers.

so when is the accc going be involved , i doubt we will see westnet, and other companies who iinet brought out offering competitive prices against each other

Amazing…..
iiNot can acquire Westnet, Netspace, AAPT, ozemail, ihug and now transact.
But if someone wants to acquire iiNot???? Omg omg omg we can’t have that can we.
I hope iiNot gets prodded the same way that they have done to others. And I hope the CEO smiles while they are doing it.

Big players have more (of a positive) effect on competition than small players. Big players can have loss-leaders (see Telstra), small players have to make a profit on every sale. Lots of “big” players results in better outcomes for everyone.
The reason for an inquiry would be to determine if iinet+TPG would be better or worse in the long term.

TransACT et.al + iiNet (due to the scale of everyone) was only going to be better in the long term. (make those companies more secure due to an increase in scale).

TPG is GREAT value for money but their network isn’t consistent (i say this cause i have never had an issue on unlimted). However their support over phone is rubbish (i stick to whirlpool if i ever need it)

It’s true, there are double standards here, but in Michael’s defence, I think almost all (if not all) of the companies iiNet has acquired actually wanted to be bought. However, I don’t think anyone really wants to be bought by TPG.

at the end of the day, it’s the majority of shareholders that will decide the fate of a TPG bid for any company, and not an inner clique of privileged executives (i.e. there’s a fundamental difference between iiNET senior management rejecting a bid for *their shares* in the company and the majority of IIN shareholders rejecting the same offer).

I think you guys are reading this wrong…. iiNet isn’t saying that TPG cant buy them, they are saying that if either TPG or iiNet buy the other one, there will need to be a public inquiry due to the market share of them both combined.

I also think iiNet is using this as a platform to flush out why TPG is buying up so much stock of iiNET!

I don’t think iiNet is using it as a platform to flush out TPG — I think Malone only talked about it because I explicitly asked him about it during a press conference — and even then he didn’t really want to and said as little as possible ;)

What I like in these comments, maybe if TPG bought iinet. Would it like to keep it as a premium career? so it covers more markets? I personally have never had any problems with TPG technical support and I used to be technical support for Telstra, some of the people you work with shouldn’t have that role.

I wish i could say more, but Telstra makes you sign a contract when you first start to never speak of the inner dealings or any information that you gain.

All I’ll state is your ISP’s are telling the truth, because lying cost customers, business need customers to be a business. I’m just speculating, what would I know.

Most of the issues I have ever seen between customers and customer support has been miscommunication related.

The guy at the end of the phone isn’t a mind reader, and the guy complaining often doesn’t know what they should be complaining about.

End result = 2 parties that both feel like they are getting stuffed around. (and in reality, they both ARE getting stuffed around, just not on purpose!)

Comments are closed.

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